The City of Benton Utility Commissioners met in special session Monday, January 6, 2020 at the Electric Utility Building, 1827 Dale Avenue.

In Attendance:

Doug Stracener, Chairman

Gary Ferrell, Member

Charlie Best, Member

David Vondran, General Manager

Chairman Stracener called the meeting to order with all members in attendance except Members Miller and Martin. Member Best gave the invocation and Member Ferrell led the Pledge of Allegiance.

The first item of business was approval of the minutes from the regular meeting of January 6, 2020. Member Best made a motion to approve the minutes as presented and Member Ferrell seconded the motion. A vote was taken and unanimous approval was given.

Old Business

Service Territory settlement agreement–David Vondran or Jason Carter

Mr. Carter said we’ve had negotiations with the ongoing conflict with Entergy pertaining primarily to the property at Exit 114, and then also the election that was proposed by Ordinance 82, and believe we have arrived at acceptable terms. He wants to make the aware of those terms and talk them though it a little bit. There are 3 documents. One of them will be required to have the Commission’s consent, and the other 2 documents will need to be signed by the City, but the settlement agreement itself is something you would consent to as a commission only. He made sure they all had copies and said he would talk them through it; primarily with the settlement agreement, but also with the ordinance. One document is a resolution for the City of Benton to approve the attached settlement agreement. The other is a new franchise ordinance for Entergy. All 3 documents have been the matter of intense negation. The most important one for you being the settlement agreement. We can go through those terms and it will help see who is agreeing to do what. Under the terms of the settlement agreement in the first paragraph, what the City is agreeing to do is they would repeal Resolution 79 of 2019 that was the data request, repeal Ordinance 82 of 2019 (ordinance to take property belonging to Entergy that was north of I-30), and repeal Ordinance 83 that was referring Ordinance 82 to the voters for an election. They would agree that those 3 would be repealed and that prompt notice would be given to the Saline County Election Commission, that Ordinance 83 was repealed so it would not show up on the ballot, and he thinks we will hit this in a good timeframe that they would not have to mail out absentee ballots. To the extent that ballots are mailed out, the City is agreeing, and you will see that the Commission would be consenting to a motion to enter into a joint motion that would be submitted in our pending court case where we said any votes that went out would not be counted; to insure that the agreement that is entered in to is actually effectuated. Then, there is a narrative regarding the franchise fee that the city is agreeing to adopt. There’s a list of provisions in here for the franchise agreement to contain, with the first being that we acknowledge that the Arkansas law applies. He doesn’t really know how we could disclaim that, but we will agree that the Arkansas law applies. We will agree that there will be a franchise fee of 5.2%. Entergy currently pays 4.25% within your rate structure, you have a 5.48 rate based within your rate structure. He believes your local coop is paying 5.22, so it brings them more in line. It also aligns Entergy’s franchise in Benton with Entergy’s franchise in Bryant. He thinks it is a victory for the City. It creates more equity for the community. Entergy has consented to that point as part of the settlement agreement. One point that you should note is that the way the new franchise agreement works is the City and effectively this Commission as the agent of the City, agrees that what Entergy serves inside of Benton, will continue to be served by Entergy. Now, there is a less and expect list of properties. You will see where Entergy agrees. One is the Exit 114 Property off the top, then also if you recall back in September that we provided timely notice under subchapter 207, that we intended to acquire 5 different properties from Entergy and all of those properties are accepted out of that agreement. You can see Ordinance 46 of 2016 and the rest being from 2019; Ordinances 21, 22, 44 and 66 of 2019 are all accepted from that. So, assuming that we go through with it and that haven’t consummated those deals yet, it is our right to do so, and take that property and serve it. Beyond that, any area inside the City of Benton that is within the municipal limits; it would only be taken through a negotiated agreement. We are still free to negotiate that. Member Ferrell asked if that is as of today and Mr. Carter said yes, and future areas that are annexed can be freely annexed, but you have to comply with the 14207 (3) year notice provision, but you are free to take it. You can also see what they have agreed to, and they have identified 2 areas. They both have to be west of the river, but one is north of I-30 and one is south of I-30, but west of the river. If we acquire those territories that they deemed protected, one being 200 acres and one being 230 acres, then we would have to pay a 1.5 multiplier, which is 50% more than the normal acquisition cost. Number 3 is just recognition of their authority to serve their properties and it is saying we are not going to initiate a process to forcibly take property from them, except by following the 14207 process. He wants to draw their attention to the fact that it says the acquisition process for future annexed areas provided by 14207-101, but then it also says as presently enacted, or hereafter amended for other applicable law regarding the annexed areas, so changes in law will be applicable to acquisition in the future as well. Subsection G is the 10-year period that increases the cost of acquisition for those 2 protected areas. Subsection H has really been more of the contentious part about the 1.75% return for a period of 10 years for Entergy. In our communications with the City have been that that amount would be deducted from the 5.48% that is usually paid as a part of an internal rate of return to the City, so it would split off and should not affect your rate base. In the future when you do rate studies, the City may ask for that to be rate based for that amount, but then it would be part of a rate study to where it could be included as a cost. The initial starting point is that everything just gets deducted straight out of the 5.48% until such time as it would be rate based. Member Ferrell asked if that is when this agreement starts and Mr. Carter said yes sir, but it only pertains to that Exit 114 property. Right now, there is no revenue from 114. Member Ferrell asked if the time starts with the signing and Mr. Carter said yes. Then, last is good faith negotiations for the acquisition of block wholesale power and that is where we have said yes, we will sit down and negotiate to see what is favorable to us. He knows there’s been some discussion with the Commission, and he thinks rightful discussion of the Commission to look at Hurricane Lake area and the ability of the Commission to serve that area probably better than Entergy could, despite the fact that Entergy has had it for a long time. Their resources in that area appear thin, so it might be better served by the Commission. He just wants them to keep in mind that that could be a part of the negotiations in the wholesale power talks and it is something that could be brought up. In subsection 2 is what you are agreeing to as part of the settlement that you won’t extend into their territory unless we have adhered to the acquisition processes. You will see in the franchise agreement there that they are also agreeing that they will not extend into your territory as well. In Subsection B, it says you will abide by the compensation provisions, which are the 1.75% that you will participate with the City in those compensation provisions, and the 1.5 multiplier for anything that is acquired. We have more meat on the bone, if you will, regarding negotiations for wholesale power, where we are saying it is not less than 4mW delivered to your commercial pricing node within MISO for a period on not less than 10 years. We tried to match as best as we could samey-samey to Exit 114. He would not be surprised if Entergy tries to come to you with a bigger package. That is their prerogative to come with something bigger if they want to, and we will just see what happens when that happens. We are also agreeing that we will work cooperatively to enter the consent motion as discussed, as the City is required to consent to as far as stopping the election. So, what Entergy of Arkansas, LLC is agreeing to is, step number 1 pertaining to Ordinance 37 of 2008, that they will release that territory to BPUC to be served, so you will take that over. They will initiate the proceedings to amend their maps on Subsection B, so that is their task. He doesn’t know if they will need administrative support for that or if they will need us to show up and say, yes, we are taking it. He thinks that would be easy enough to do. Again, they are working cooperatively on the consent motion to stop the election; or at least the votes from being counted. Then D, we had to dance around this language a little bit, because while the case is open through the election, because there will be a pending order that is holding the votes, the case is still there. We need to be 100% confident that this thing is in the process of being dismissed, and don’t want to continue to fight the case, because if this case is being dismissed, we don’t want to have to be filing answers and discovery and going through all of that process. That is burdensome and expensive and we don’t want to do that. They have agreed that not only will we issue motions to the court to not count the votes and go through the election process, also, in a similar motion that we will suspend all activity in the litigation until such time as the case is dismissed. As soon as we get past that point then the case will be dismissed. They will execute and return their franchise agreement that has been previously described and then they will identify their 2 additional compensation areas; one being 200 acres west of the Saline River/North of I-30 and Hwy 70, and the other being the Southside of 300 acres west of the Saline River/South of I-30 and South of Hwy 70. If you turn to the back, that is the spot for signatures. The signatures being the Mayor of Benton, the Chairman of BPUC and Laura Landreaux, the President and CEO of Entergy of Arkansas, LLC. That represents the 3 parties participating in the settlement agreement and brings them into the fight, if you will. There will still be some cleanup actions, but this brings them into the fight. The resolution ordinance would be documents voted on by the City Council, and you can see the resolution is pretty clean, in that it narrates the process on the front page with recital clauses. One point he thought was important was we focus on the fact that the Exit 114 property is being developed, and if we had this continuous dispute over it, then it would risk impeding that development, and that is a really important reason to get this thing wrapped up. The franchise ordinance is pretty standard language. You can see the language here that was stated in the settlement agreement about how it is reflected in the ordinance. This forms the basis of their operation inside the City of Benton. It is very typical of what you would see in other municipal ordinances and you can see the franchise fee of 1.2% effective April1, 2020. The only steps for the Commission to take, beyond the Commission asking questions and making sure you fully understand what you are deciding, is to authorize the Chairman to execute the settlement agreement. Chairman Stracener asked if he recommends having a do pass motion for a resolution of the ordinance and Mr. Carter said it would certainly be a good recommendation to come from the Commission and City Council for them to consider on Monday night when they convene, that this Commission has recommended do pass. Member Miller said we also have to forward the ordinance. Mr. Carter said the documents were sent through to the City already, just for a timing perspective. We were told we had to have it over to the City by closing yesterday. He thinks the Commission’s recommendation would be important. Member Best asked if Mr. Vondran was involved in all of the negations and if he agrees with it and Mr. Carter said yes sir. Member Best said he is asking since Mr. Vondran is not here. Mr. Carter said he thought it was important that Mr. Vondran and the City Attorney, Brent Houston to be a part of it as well. Member Ferrell asked if they were both involved all the way through and Mr. Carter said yes. Member Ferrell made a motion to give the Chairman the authority to sign the settlement agreement and send it to the City. Member Best 2nd seconded the motion. A vote was taken and approval was given. Member Ferrell made a motion to agree with the resolution and Member Best 2nd the motion. A vote was taken and approval was given. Member Ferrell made a motion to send the ordinance to the City, the attorneys approved it and ask that it be put on the City Council’s agenda. Member Best 2nd the motion, and a vote was taken with approval given.

Network assessment report– Mr. Brad Cicero

Mr. Cicero with Allied Technology said we conducted a network assessment for Benton Utilities between August and December of last year. We basically provided 3 main reports to Mr. Vondran, and discussed those with him back in December. The assessment had 3 primary goals. We were there to provide a high-level network diagram of the BU network, conduct a security vulnerability scan and provide a report of the findings, and provide short- and long-term recommendations based on what was found during their site visit and during the entire assessment. On December 27th, we provided those reports to Mr. Vondran which was the network diagram. It not only included the Benton Utility network, but basically all of the other corresponding networks that are plugged in to the fiber optic network that you guys share, so there is more to it than just the BU network itself. Vulnerability scan number 1 & 2 are just different segments of your network. The report basically looks at every device on the network for any type of vulnerability, whether that be continuity to your day to day business just through weak points in the network, and also things humans would take advantage of via malware security parameters or anything of that sort. We found quite a few urgent risks during those security reports on both scans 1 & 2. They saw things on the Police Department network, Fire Department network, City Hall and basically everyone connected to the fiber optic network that you have in place today. The 3rd part of this assessment, obviously once we ran the reports, physical assessments and check on every location, are the recommendations. On the latter part of the first and the 2nd page contain the short- and long-term recommendations based on what we consider industry best practice for what you guys do. On the vulnerability assessment, it ranks everything from a criticality 5, which is the most critical, all the way down to a 1. Our recommendation, and he did not print the report for them today because it was 500 pages long, but Mr. Vondran does have a copy of it. Anything they found that was a criticality 5 and criticality 4, really need to be taken care of as soon as possible. The part of the recommendation that you need to talk about and decide is how you want to segment the fiber optic network. He asked if they just want to look at BU going forward and let all of the other departments handle their own security and network administration. That is part of what we made recommendations on as well. Our recommendation was to at least segment the BU network; lock it down and secure it the most appropriate fashion we possibly could, and obviously everything that belongs to the BU network to handle the critical level 5 and 4 that we found. The first recommendation was to mitigate the potential damage and liability. Each department should implement its own policies and security parameters, so if something happens at the Fire Department, Police Department or City Hall, we can isolate it and contain it where the BU network is protected. The second is to implement policies and tools to patch, update and monitor all devices on the network in an automated fashion. Next is to replace all end of life and obsolete hardware and software. We found numerous devices that were on the network that were no longer supported by the manufacturer, so basically if something happens to it you are dead in the water and scrambling around to replace it, but as part of the manufacturer warranties you also don’t get security patches and vulnerabilities as well. The 4th thing is to implement network redundancy at critical fail parts. The example he gave was you only have 1 internet connection and 1 voice connection into the outside world, so if something were to happen you are basically just dead in the water there. There are a lot of inexpensive ways we can go out there and add some good scalability and redundancy there so you are not subject to a single outage taking your entire network down. The 5th thing we recommended was to implement a comprehensive backup and business continuity system that will protect the network from natural and man-made events. The current system is lacking on several fronts and will not provide sufficient protection any event whether man-made or natural. The 6th thing is to implement an advanced email security platform to better protect the network from phishing attacks, credential exploitation and other social engineering attacks. As you probably see on a day to day basis whether in the newspaper or on TV, that is just a cost of doing business now. It happens to everybody, and if it hasn’t happened to you, it will. The best thing you can do is protect yourself in the best way possible, and have a disaster recovery business continuity in place, so if and when that does happen, you have something to fall back on without losing a lot of data and compromising the data on the network itself. From a long-term perspective, we recommend putting a comprehensive cyber security infrastructure in place that includes (IPS) Intrusion Prevention Services, (SIEM) Security information and event management, Phishing/Social Engineering testing and training, Internet Content Filter and Malware Detection. The 2nd thing they recommend is to implement a modern phone system/Unified Communications platform to increase employee productivity and communications. The 3rd thing was to consider a comprehensive cyber security insurance review for the BU network. The 4th thing is to implement a reporting system showing network activity, anomalies, cyber events and network health for monthly/quarterly review by the executive staff and Commission. Chairman Stracener asked if they are working with the City as well and Mr. Cicero said we were not. They were basically working with Mr. Vondran, but obviously, all of the networks are completely intertwined, so the report had a little bit of information from them all. Chairman Stracener said he knows the City just went to a different phone system and are still working on it. Mr. Cicero said that is correct, but this is strictly for the BU network. Member Ferrell asked if he has given Mr. Vondran a proposal and Mr. Cicero said Member Ferrell asked Mr. Cicero said it is a mess. Member Ferrell asked Mr. Cicero said he has. Member Ferrell asked if in that proposal he knows that part of this is the splitting from their system and Mr. Cicero said yes, sir. We have discussed that. Member Ferrell said and we know it is a mess and asked if we have any XP still and Mr. Cicero said yes, not a lot but yes sir. It took 3 months, and we made quite a few trips because we physically look at it because a lot of the reports didn’t make sense until we put hands on. It is a mess. Member Ferrell asked if sharing that fiber optic network is a liability and Mr. Cicero said it is. Member Ferrell asked if we can lock it down to segment our part completely. Mr. Cicero said yes, and right now it is not at all. He can plug in here and basically see every node of your network and everyone else’s. Chairman Stracener asked if we share the network with the school district and he asked if those are segmented. Mr. Cicero said surprisingly enough, the school district was segmented more than anyone else. They had more parameters in place than any other department that we saw. He saw very little on the school network. Chairman Stracener asked if he has a report of who is on that network and Mr. Cicero said yes. Chairman Stracener said he would get that from Mr. Vondran and Mr. Cicero said yes, Mr. Vondran has that complete report. Chairman Stracener said he gave us the receipts from the last time they met and they will meet again and go from there.

Departmental Reports

December Employee of the Month– Molly Wright/Brent Davis (Tom Johnson)

Mr. Nathan Schultz said Tom Johnson is the Employee of the Month. He has been with our department almost 14 years. He has been in every situation and learned everything. He has been in charge of the manhole rehab and running the camera in. He has done a good job on everything and is our lead man crew. He is going to the plant on February 18th for an opportunity to be a foreman there. We hate to lose him because he is a good guy and works hard, but it is a good opportunity for him. The Commissioners thanked Mr. Johnson and Mr. Johnson said it has been a great opportunity to work with you guys.

New Business

Pension Plan report Stephens–Mr. Jody Carreiro

Mrs. Scott introduced from Stephen’s, Larry Middleton and Bo Brister. She said they have put the report as of December 31st and the status of the plan assets at your desk. Mr. Larry Middleton said Bo Brister is the SVP at Stephen’s and then introduced himself as EVP at Stephen’s. Mr. Middleton then said we manage pension assets of about 24 billion, and probably manage more of the police and fire assets than anyone else in the state. They have a team of 14 people that does that. The average tenor in our group is 20 years, so we know a lot about your plan. Your plan actually looks a lot better than a lot of plans in the market place. We have a good report, but you would expect that with the way the market is acting. Our role is to serve as your investment advisors. We are fiduciaries, which means we have discretion and full authority within the investment policy to manage your accounts. You have an investment policy which sets forth the platform and he and Mr. Blister manage that like they manage other plans. Other plans you might be familiar with is the Police and Fire Departments for the state, and a lot of the management input that we apply there is also applied here. Mr. Jody Carreiro of Osborn, Carreiro & Associates, is your actuary and we consult with him a lot on a lot of plans. The objective here is to make sure we have enough money to meet all of the obligations that the Utilities have committed to on behalf of the employees. You have probably read a lot about plans across the country that are not doing very well, but that would not be you guys. We think you are slightly over 80% funded. Mr. Carreiro said after we do 2019’s numbers, you will probably see 89 to 90%. That is phenomenal and that means the City has done a great job of putting the money in, we have done a good job of managing the money and that is a stellar report. The most important number on this page is in the bottom right hand corner which shows your plan made 19.97% net of fees for 2019. The most important part of that is that is only 65% of the portfolio allocated to stock. We didn’t start out with 60; it appreciated to 60. When you have this kind of momentum behind you, then you would expect that. We are at a 50-year low on interest rates and unemployment. You have had record earnings for the last 10 years. You are in the longest bull market in history. There is a reason you see these good numbers that give you that kind of funding ratio. We look at it and worry about it every day, because we don’t know what disease is coming over from China, who the next president is going to be or what the Fed is going to do next. They say they are going to drop rates again, so it is a moving target for us. We have 1% moves in our day, which probably doesn’t sound like a lot to ya’ll, but it is huge for us, and our job is to figure out how to move that money. We execute all trades as an agent at no commission. We serve as fiduciary, so ya’ll get to buy for exactly what we buy it at for you. Fiduciary is a big word that means we make all the decisions and we’re accountable for the decisions we make. It is a very senior level group inside the firm that is permitted to have that kind of latitude. He said he talks fast and talks about numbers, and by the way, they worked with Mrs. Scott when she was here last time. We worked the Little Rock plans and worked with her there. They are big fans of Mrs. Scott. We think you guys have a really fine resource here. Mr. Blister is going to tell you a little bit more about the mix of the portfolio and then we would love to have your questions. Mr. Bo Brister said as Mr. Middleton mentioned, 19.97 for 2019 was more than anyone expected when coming off the hills of 2018, because, obviously that was a pretty volatile time in the markets. In looking at 2019 as a whole, we only really had a few hiccups during that time period, and it wasn’t without headline risk. We had the Chinese trade tariffs, Brexit and some of these ongoing issues out there from a geopolitical standpoint. That made things a little more challenging if the market had continued to trend higher. We had about a 45 day period through the end of July and most of August where it did look like we were starting to see the early signs of what he would call not necessarily a technical term correction, but a pullback in the market, and sometimes those pullbacks are healthy for us. They allow evaluations to look a little less frothy and be able to read a voice in capital back in to some asset classes that we believe are still going to have some room to grow from an appreciation standpoint, and push forward through the remainder of the year. It is certainly what happened in Q4. It was a robust quarter for your plan. 5.3% of your almost 20% number came in the 4th quarter. It was a big push coming off the hills of what he would say was a flattish 3rd quarter, so if the 3rd quarter had been even close to the other 3 quarters, it would have been even more of a substantial year. Given that, Larry mentioned we did so with about 60 some odd % equity exposure into your plan. He doesn’t like to go through the individual position by position, but there is a pie chart on one of the last pages that is right before all of the legal speak. When we construct these pie charts for you, we are taking into consideration that we are building a model for a market cycle. It’s tough to kind of think that we have had a market cycle, because for the last 10 years it has primarily gone up with a few of these hiccups, like we had in December of ’18. When we construct this, we really want to narrow this bandwidth for you and take advantage of a growing and appreciating economy, and also be able to limit our downside in the event we saw some uncommon pullbacks into the equity market and/or fixed income. In looking at this, we were only running 1.69% cash, meaning we were trying to get you fully vested as much as we could. 62.82% was your net equity position, and that is a little higher than it would be in most cases, but again, when the market was kind of running the best thing to do is to not fight the Fed and don’t get in the way of it and let these assets continue to appreciate. We always reevaluate and meet weekly. We have investment committee discussions. He and Mr. Middleton sit on the firm’s investment committee for various policies, plans and programs that they have. We are in this every day. We are looking for signs and looking back to pare things off. Historically, in an election year, you actually have a pretty flat summer, believe it or not. You would think that as the rederick is increasing it means the market doesn’t want to take a bet one way or the other. We think volatility will actually slow down as we get closer to the summer months. We may look for some opportunities to kind of pare back some gains for you, take those off the table and play a little bit of defense, and when it gets closer to November it is going to drive where we think the market is going to go. At some point in time, because all cycles have a cycle, there will be a healthy pullback or substantial correction, but historically speaking, when that does happen; it is just paving the way to the next high and we will be prepared for that. As Mr. Middleton mentioned, 100% of this portfolio can be liquidated in a matter of about 5 minutes, so we can go to cash as soon as we make that decision to pare that money off the table. Again, almost 20% return for 2019. So far, so good in January. We will continue to monitor this daily and we are always available for questions. Mr. Middleton asked Mr. Brister how much we are up so far for January and Mr. Blister said 2% plus. Mr. Middleton said here is the most important thing, you have an assumed rate of return and your plan is 7%. The dividends and components of this portfolio covers almost half of that. That means he only has to earn 3 or 4% on growth to hit your assumed rate of return to get you actuarially sound. Those are really important calculations. Mr. Carreiro looks at the age, revenue and our return model. We have a lot of history with him, so he has some idea of our forecasted returns are going to be. We are a team, but work for you guys. It has been a while since we have been here. We would love to come back more often. He thinks they should come back at least once a year. Good reports have short meetings. Tough numbers require a long meeting. Chairman Stracener said with numbers like these we will have you back more often. Mr. Middleton said he is really proud of them, because there are a couple hundred plans and this is one of the better ones. Mr. Cicero said the evaluation report is in a sense, a year old. It is based on January 1, 2019, because we are just now getting asset numbers and collecting all of that information. He wanted to give them an update and talk about a few things, because you are at a point where you may want to consider a few things. He wants to get them up to speed so that they can. The packet of goodies he gave them is the evaluation which was forwarded by Mrs. Scott electronically, so they had it before and had a chance to look at it. We won’t spend a ton of time there, but there are a couple of things he wants to point out. There are a couple of yellow sheets of paper in there, and after that first sheet of yellow paper there are some grafts that summarize some of these reports. There is another one with information he has collected for another purpose just over a year ago having to do what other cities and other utilities are doing state wide. That will just be some references for you to look at later. We can talk about that now or later, whichever you prefer. Starting at the beginning with the report, the cover letter talks about general information about the number in the plan and everything that was there. The 2nd page recommends to continue with at least the $750,000 contribution, even though the calculated number was a little more, because we felt like there was going to be a bounce, which there was from the crazy end of 2018. Of course, 2018 for the playing year was only about a -6%. It was a typical range. Plans lost 4 to 6%, so it was a typical range, but for him in an actuary, it was -13%, because it is 7 plus that -6. 1997 is about 20 -7= a 13% gain, so it gets us back to where we thought we would be going forward. His dad was one of those guys that really pushed him. He would come home with a paper from school that said 97%, and his question was always, “what happened to the other 3 points?” He wanted to know what happened to the other 3 bases points. 20 is such a nice round number and would have been nice. That was the big change for last year. There haven’t been any big changes in the plan since 2011 when employee contributions were added for new employees. That was several years ago. In 2013, we reduced the long term expected interest rate to 7%. It is the 7% that was mentioned as our actuary target that we discount at. The 3rd page of the cover letter talks about areas of risk, kind of like the network assessment you just got a report on. It gives you areas that might be a risk. One of the things in there is a 1% change one way or the other changes that recommended contribution by about 4/10 of a percent of payroll. It gives you a way of seeing how that risk is, so however risky our assets are based on our payroll; every 1% that we are off one way or the other can change that recommended contribution by 4/10 of a percent of payroll. Right now, we are a little more than 20% of payroll, so it is a pretty big swing. We’ve got a lot of asset risk, and there are a couple of reasons why as we talk about the charts. He will just tell them what is in the rest of the report, because the charts have most of the information, and then we will come back to it. There is a table of contents that gives you a list of what all of these things are. It is right behind the cover letter. There’s calculations of the contributions, details of the liabilities of the plan (he will show that to them in graft form in just a second), a summary of the last years of financial reports (in exhibit 3), actuaries (where the data came from and information about the participants, a summary of the plan provisions (cutting the plan down to 3 pages instead of however many pages it is) and then we have to talk about what our assumptions were in doing all of this. The back half of the report, all of the appendices, are only the things an accountant would love, because those are turning all of those into accounting things that are there, although there is some good information in there if they would like to look at that. He wants them to flip back to some of the graphs, so he can hit some of these areas to give you an idea of where we are, not just as a snapshot of 1-1-19, but where we came from in the last 10 years, and an idea of where we are headed. The first graft is BU Employees’ Pension Plan. It has the market value of assets and the net pension liability. When we calculate, we calculate an accrued liability or, in accounting terms, a total pension liability. That is all of the benefits that have been earned to date. It calculates the present value of all of these benefits based on the assumptions. Some people will quit before they retire, some will retire, there’s a certain amount of salary increase in that period of time, and we have all of these retirees and mortality assumption of when they are going to die. All of that goes into there and you get a total pension liability and then you compare that to your assets. The difference is a term that he wishes actuaries never started, because it kind of flips people out, and that is the unfunded liability. It is not currently funded, but it is the piece we have to continue to do. When we look at the contribution rate, there are 2 pieces to that. One is the normal cost, which is this year’s accrual and the other is the payoff of this unfunded liability. Here you can see what we have done in the last 10 years, and see how the plan has progressed. There were a couple of bumps in that, and he thinks they are pretty easy to recognize. From the end of 2011 to the end of 2012, you see a bump in the way the liabilities were increasing on a slow steady March and there was a bump up there and that is where we changed the assumption to reduce the long term discount rate to 7%, so that ½% reduction made the liability just like a bond works. The lower the interest rate, the higher the value of the bond and it is the same thing with pension liabilities. So, you see that little bump up there, and then between 2014 and 2015 you see a little bump down. The little bump down there is when the divorce happened. It is when this plan and the City plan became more separate than they were. This plan paid around $800,000 to the City plan for those shared employees that they had at that particular time, but you see the assets and liabilities went down in that year, and also it was not a great investment year. The blue bars are the assets and they have been a little bit up and down like the market does. It goes up and down and does its thing. We see what happened in 2018, when we were marching up on the assets and then they dropped back down. The percentage at the top is the funded percentage, and that’s the number a lot of people look at and say, “boy, if you can stay 80% or above you are in pretty good shape”. That is short sided because it doesn’t include everything. It’s like having a mortgage that is really small, but if you can’t make your house payment, it doesn’t do you any good. It is a little bit like that, but it is good, as the plan continues to mature, to have a higher funded percentage. We want to be over 80%, and as we already talked about, we should be close to 89 or 90 when we do all of our work for this year. The 2nd graft tells a story too, because it splits up this liability, so this total liability, the top of these bars are the same as the bars were before, but this splits it between the retired members and the active members. You can see how the retired members group continues to grow, and there are a couple of things there. We are in the midst of the baby boomer retirees, and the other thing we are in the midst of is tremendous improvement in mortality, so we have more people retiring and they are not dying and that means our retirement liability goes up. The folks that went to work 30 years ago had a life expectancy at age 65 of about 17 years. Someone who is 65 today, has a life expectancy of about 20 years, so roughly 3 more years. Not only have we been funding along the way as we were supposed to be funding, we have also had to fund or catch up with the fact that every retiree will get 3 more years of benefits than what they were going to when they went to work. Another way to see how that has changed is the next page with the 2 pie charts, which he feels is telling pretty quickly and is pretty cool. The actives made up half of the liabilities of the plan 10 years ago, and then this last year they made up 38% of the liabilities of the plan, and again, that is a function of more people retiring and staying alive longer. That group is growing faster than the active group is growing. He knows they are concerned with the contribution rates, and those rates are made up of 3 pieces; the 2 pieces he shows you and then they are reduced by the amount of the employee contributions, so this is the total contribution rates. Like he said, there are 2 parts to this, and one part is what we call normal cost, which is just the cost of benefits accruing this year. You can see that there is a bump up between ’12 and ’13, which similar to before, was the change in assumptions. Other than that, there is a little bit of wiggle, but as a percent of pay it has stayed very level, which is what it is supposed to do. We like to see it do what it is supposed to do. The bumpiness of the contribution rate has not had anything wrong; it is just the bumpiness of the market. We can look at when the market goes down and the 10-year payoff of those liabilities. Another side note about 10 year, lots of people are talking about 15, 20 or 30 years. They have lots of plans that are still close to a 30-year amortization of that payoff. That is just too long. It needs to be shorter. The people who are working that are going to get those benefits with an average work life of 10 to 15 years, and that benefit needs to be paid off in that period of time. 10 years is a real good place to be from that. These numbers would look a lot better if the just said well, let’s just do 30. That is not the best thing to do and number 2, it is bumpier but does actually pay off the benefit in a very reasonable way. Again, based on the number we looked at a minute ago, the recommended number will come back down as a percent of pay this year, because the unfunded will come down from the good earnings. There has been discussion about change and some things you may want to look at some point. If you say, change future multipliers or something of that nature, from the 2.75. If you do that, it will change the blue bar. It won’t change the red bar on the contributions. When the employee contribution was put in, it was not put in for everyone. It was put in for those hired after a certain date. The employee contributions reduce these numbers by 2% instead of 4%, because you have the employees that were here before that are not contributing. He wants to point out the last piece in there, especially if you want to have further discussions about changes and doing things to the plan. On page 5 & 6 of that report, it talks about retirement income replacement and outlines things you need to think about. If you are thinking in 10,000-foot level of what is the right benefit and if we need to make any adjustments from that standpoint. He wants them to think about that income replacement information. He knows there are little things that need to be done to the plan on pass service and if employees go from here to the City or vice versa to actually put something permanent in the plan so that it is fair both ways in the future. So, those are kind of on our list, and anything you have for us to look at that might be on the list for changes. Member Ferrell asked the list of the 50 largest cities shows us what plan they are on and Mr. Carreiro said yes, but he didn’t do all of the little towns & didn’t give them all of the pages. We have killed enough trees. This shows what plans they are on, whether it is a defined benefit or defined contribution and is kind of a one liner description. You guys are kind of unique with Water, Wastewater and Electric all in one piece. On pages 8 & 9 of that report, is the water and wastewater, so it is kind of unique and the most comparable thing. When you think about that, you think of it partly in terms that you have a lot of folks that you would be competing with that is APERS or an APERS lookalike. You have a little better benefit that APERS right now. That is just there to help you balance out some of that thought process. Mr. Hood said he hasn’t looked at that or anything, but when he talks about APRES one of the things we have seen about being on APERS is our full vestment is at 15 years, where everything else is fully vested at 5 years. Mr. Carreiro said yes, that is correct. In the incorporated world, 5 years is the legal standard. Then 15 or 20 years ago most public plans went to 5 years and that is something that is unusual. Your multipliers are higher than usual, but that vesting is longer than what is typical. Mr. Hood said 10 years ago in his department they had an average of longevity for an employee of 20 years. Today he is down to a longevity of about 3 years. He asked how that affects our plan. Mr. Carreiro said everybody who is hired now has to make the contributions and their contribution is theirs. We have to build that in to our calculation because if they leave before they are vested, they get their contributions plus some interest back. As far as the rest of the plan is concerned, we have a turnover assumption and it is time to look at it again. We assume that a certain amount of people are going to turn over as time goes through. The money the Utility puts in the plan, stays in the plan. In a sense, a higher turnover rate is a benefit to the plan, if you look at the plan by itself. It is not necessarily good for the Utility, but it is good for the plan as an entity, because the contribution includes everybody, but they only get their contribution back. All of the other money that was put in stays in the plan. Mrs. Scott said they will never get the monthly pension because they are leaving before they are vested. Member Ferrell said he would like to look at this, have a work session and come back with specific questions. Mr. Carreiro said he hopes he has given them everything to keep them up at night. Mr. Vondran asked what the timetable is on his next report and Mr. Carreiro said he and Mrs. Scott haven’t set a timeframe yet. In recent years it has kind of dropped late in the list mainly because the auditors are always looking back at the previous year. They weren’t using the same year results, but he thinks Mrs. Scott is pushing that timeline. Now they are getting the financial stuff, he just needs to send his spreadsheet over to get updated on employees and we can get started pretty soon. Mr. Vondran asked if it would be in the 1st quarter and Mr. Carreiro said at the end of the 1st quarter or somewhere in there.

Mr. Prysock said this is the bid approval for crossing the river on the east and west side with the 2 self-supporting poles and the interstate crossing. We only had 1 bidder and that was Chain Electric Company. They are out of Hattiesburg, Mississippi. On the 4th page, $1,564,529.39. We had estimated $700,000 to $800,000, so there is quite a bit of difference. Chairman Stracener asked if this included the poles and Mr. Prysock said we have already purchased the poles and have them here. Chairman Stracener asked how many miles it is and Mr. Prysock said it is 600 feet across the river and 400 something feet across the interstate. We already have some of our stuff in, but this is for them to install the poles, running the fiber on the top and then connecting to our poles. Mr. Vondran said Fisher Arnold originally estimated $750,000 to $800,000, and after the results of the bids were received Fisher and Arnold requested and he granted for Fisher and Arnold to go back to the company and examine where their costs are. The result of Mr. Tommy Dickens findings indicated their structure/pole work was in line with today’s pricing, but their overhead stringing process was definitely out of line with what is typical, so he has opened a the channel of communication with them to see if there is any room for negotiation of the bid that he felt was higher than market occurrences. If that company had requested a copy of the bid tab, which if he were them, he would get a copy and not see much eagerness to negotiate, but the opportunity is still there and being pursued. Member Ferrell asked if they had any idea regarding the low participation of bidders and Chairman Stracener said there is a lot of work going on. Mr. Prysock said he feels like it is the timeline. When we went down and looked at the river, they weren’t real impressed knowing how high it can get, and with springtime coming, it is a bad time to be in the river. Chairman Stracener said there is a ton of work going on right now and Mr. Vondran said everyone is in California, so everyone in the mountain time zone is working in the pacific time zone and everyone in the central time zone is working in the Mountain time zone. Mr. Prysock said this is really transmission. This river crossing is not just the average distribution line. The construction of it is basically transmission. It is heavy duty. Mrs. Scott asked how many were at the pre-bid meeting and Mr. Prysock said 4 or 5. Member Ferrell asked if he thinks the issue was the schedule and Mr. Prysock said he feels like it is. It’s the time of year and everybody is busy. Mr. Vondran said Mr. Dicken’s recommendation to the Commission was that the bid form was complete and proper as far as the capability of the firm. It was just his concern with the price being higher than expected. Mr. Prysock said it looks to him like their labor charges are way high compared to others. Member Best said you either have to accept it or reject it, and go out for bids again. Mr. Vondran said yes sir, which would delay our timeframe for serving the CTE, although we are visiting with First Electric about the possibility of a primary metering point, but that would definitely be a more difficult route and would actually have to be approved by Arkansas Electric and go before the Public Service Commission. He thinks that route would have enough of a delay that we would miss our mark with CTE. Chairman Stracener said that might be a good thing to do later for liability purposes. Mr. Vondran said absolutely, and they are eager to do that. Chairman Stracener said if we have a big flood and it takes the line down, we are wiped. Mr. Vondran said they mentioned that. They are looking forward to that. Member Ferrell said he agrees with that very much. Chairman Stracener said there is nothing solid in that river basin. Mr. Prysock said there is not a good place to cross it either. Either way is a flood plain. Member Ferrell asked Mr. Vondran if we have the money and Mr. Vondran said yes sir. Chairman Stracener asked if any portion of this is coming back from the Highway Department or is this is all on us. He asked if any of this is a part of the highway widening. Mr. Vondran said no sir. Member Ferrell asked about the Highway Crossing at I-30 and if we have approval for that yet. Mr. Vondran said we have assumed approval. It is a low hurdle if any. Member Ferrell made a motion to accept the bid as recommended by Fisher Arnold. Member Best 2nd the motion. A vote was taken with unanimous approval given.

Bid Approval for IVR–Karen Scott

Mrs. Scott said we sent out requests for proposals for an IVR (Interactive Voice Response) system, so customers can pay their bill by phone. Frankly, it is surprising that we don’t already have that since it is a fairly common technology, and she and Mrs. Hawkins feel it is really priority. We had 2 venders; MilSoft and MTI. MilSoft, as you know, of course, purchased Daffron and already have a relationship with Daffron. She recommends the Commission approve the proposal from MilSoft. If we were to utilize the full-blown system, it has outage management and a trouble call line, but that is not what we asked for. Member Best asked if that is for credit cards and bank cards and Mrs. Scott said yes, so they can put in a checking account or credit card number to pay their bill. The fact that MilSoft owns Daffron can make it real time, so if someone calls in, they can press 1 to get their balance, press 2 to make a payment and so forth. We felt like the integration would be easy. Member Best made a motion to accept the bid from MilSoft as presented and Member Ferrell 2nd the motion. A vote was taken with unanimous approval given.

Chairman Stracener asked for an update on the bond refinance. Mrs. Scott said yes she can! She is so happy to report that we went to market last Thursday. Jack Truemper called her Monday and it looks like while the interest rate environment has not turned the way we needed it to. The supply of bonds in the market is practically non-existent and there is a lot of interest in your bonds, and our (trading) desk thought we could really move them, and they did. Our net present value of savings ended up being 7.039% for $925,000. She is so, so happy. This ordinance will be on the City Council agenda Monday night, and we are slated to have the closing on 2-12-2020. She is so happy we got that done and Member Ferrell said good deal. She had to tell Jack Truemper he was right. He had told her to just get kind of patient in December. December is kind of crazy and too just wait and see what happens in the first quarter. He was right.

Announcements A. Next Commission meeting date: Mr. Vondran said the regularly scheduled meeting is Monday, February 17, 2020, which is Presidents Day. He and Mrs. Scott will be at a NextEra Energy symposium on Monday 3rd. Chairman Stracener suggested February 10th, and this was the decided date.

Member Ferrell made a motion to adjourn into an executive session at 7:10 p.m. and Member Best seconded the motion. A vote was taken and unanimous approval given.